Testing Efficiency of Pakistani Islamic Banking System

Financial sector is a key component which contributes to the output growth of a country. It is fastest growing sector after the globalization period. With the advent of advances in commercial banking system, a change in behaviors of people has been observed. People changed their, saving behaviour, investment decisions. The innovations brought in banking sector caused welfare maximization. This empirical study has been conducted to evaluate the technical and cost efficiency of the Islamic and conventional banking system in the Pakistan financial market. Data Envelope Analysis programme (DEAP) has been used for empirical purpose. Furthermore, this study has also applied Analysis of Variance (ANOVA) to test the existence or non-existence of null hypothesis as there is significance difference between the Technical Efficiency (TE) and Cost efficiency (CE) of different conventional banks, the conclusion stated that this type of banking system has an impact on the efficiency of the banking sy